Featured Post

Those of you who know me or have become frequent readers of Media Realism might be more than a little surprised by my People Magazine style ...

Tuesday, July 17, 2012

Luxury Brands and Demographics

In the financial industry, there is a very attractive client group known as HNWI, which stands for High Net Worth Individuals. There is no hard and fast rule about the definition but most would say that the category starts at $1 million dollars or more in liquid assets. There are all sorts of groups as you climb the ladder of affluence into real wealth with many management firms describing those with $50 million or more in liquid or investable assets as “ultra HNWI.”

It should come as no surprise that emerging markets, particularly the Asia-Pacific region, have the fastest growing number of HNWI. For the moment the U.S. remains on top with about 30% of that fortunate group but the Asian contingent has passed Europe and could pass the US eventually.

Over the years I have always been amused at how people market luxury brands. Very few US agencies seem to “get” what needs to be said. Young copywriters often use the same tact for a fine champagne or apparel line as they do trying to sell a package good to middle America. Increasingly, the big international agencies are dominating luxury brand assignments as they have staffers who can appeal to those with sophisticated tastes.

The scope of luxury brands is amazing if you dig a bit. Let us look at publicly traded LVMH Group (Louis Vuitton Moet Hennessey). Despite an extremely uncertain economic climate in the US, a very poor one in Europe, and signs of a possible China slowdown, LVMH is chugging along nicely. Sales were up 16% last year despite clear economic headwinds. The company has a stable of brands that reeks of luxury: in wines and spirits they own Moet & Chandon, Dom Perignon, Veuve Clicquot, and Krug Champagne plus Cloudy Bay and Cape Mentelle wines. Hennessey is a big player in the spirits category and a relative of mine visiting Scotland a few weeks ago was surprised to find that Glenmorangie scotch is now owned by LVMH as well. In fashion, leather goods, perfumes, and watches entries include Louis Vuitton, Berluti, Givenchy, Pucci, Donna Karan, Dior, Loewe, Tag Heuer, Bulgari, and DeBeers. In retail they even own Le Bon Marche Rive Gauche and DFS.

Louis Vuitton has approximately 180 stores in China and they are very astute marketers. In more than one article I have read that some Chinese are getting weary of seeing their trademark monogram pattern on products. One Chinese shopper was quoted as saying “everyone has a Louis Vuitton bag, I am looking elsewhere these days.” Well. Everyone, I assure you, does not carry Vuitton but they are now floating many new designs in Asia to respond to customer comments and pre-empt other brands from making serious inroads in their most explosive growth market.

The art world has taken notice. Toney auction houses Sotheby’s and Christie’s now are drawing nearly a fifth of their business from their Hong Kong offices and I have tracked auctions for both in Hong Kong, Macau, Taiwan and mainland China.

Interestingly, Tiffany’s, the epitome of luxury in the US for decades, seems stalled. Some of their business seems to be tied to Wall Street bonuses and European visitors, neither of whom may be spending as much these days as in the past.

Most luxury brands have a strong online presence, which is essential. The affluent and HNWI use the web as their #1 source about luxury goods along with word of mouth. An area that needs to be developed is mobile. The potential is huge and when mobile can zero in on these people as online and magazines can, the payout could be tremendous. This is particularly true in key Asian markets and in Latin America.

The future of luxury brands is interesting. The rich will always be with us but they may be found in many new places over the next two decades. Looking at demographics, it appears to me that China is the place for the next several years along with smaller Asian countries as well as Brazil, Chile and Uruguay (yes Uruguay!) in Latin America. Longer term, the demographics seem to favor India. The population is huge but, unlike China, it will remain young. There will be plenty of workers supporting the old folks , which will not be true in China down the line. Do not be surprised if the LVMHs of the world start opening shops for their premiere brands in India a few years from now.

Disparate cultures deal with newfound wealth in different ways. The message may need to be different in India vs. what has worked in Hong Kong recently or New York a decade ago. The successful in emerging markets love luxury Western brands. No matter what happens in the global economy in the next several years, you can bet that many of the high quality products will find new customers in large numbers.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

About Me

Don Cole has been a media analyst for over 40 years. He was a media director and partner at Doner and Moroch and worked at two other agencies plus Arbitron.
His focus with this blog will be to discuss the rapid changes going on in the advertising industry and especially its impact on broadcast TV, cable TV, and mid-sized and smaller ad agencies.
Don is available to consult or to speak to your organization on a wide variety of topics.